Analysis Of The Differences In The Corporate Governance Framework Between The Uk And Us Models

By Author: Anthony W Bills
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Analysis of the differences in the corporate governance framework between the UK and US models

1. Introduction
Corporate governance is regarded as a process, policies, customs and laws through which a company is governed and run. Corporate governance also involves the relationship between stakeholders and the goals set forth to run the company. The stakeholders may include the shareholders, customers, suppliers, employees and board or directors as well. The main importance of corporate governance is to ensure there is accountability for various people in the company through eliminating or reducing some of the problems that may rise within the company.
Corporate Governance (CG) has attracted attention to both the local and international level because it ensures a notable impact on the maintenance of healthy and safety environment for companies and their relation with all stakeholders and the economy, the ability of the company to achieve its financial goals and addressing the shortcomings that may arise in the CG principles. This research proposal is for the analysis of the differences in the corporate governance ...
... framework between the UK and US.
Aims of the study
1.1 The study aims at introducing the reader to the UK’s and USA’s models of governance. This Study will highlight the different approaches both countries take in governing Corporate. The present implications taken by Sarbanes-Oxley in application to the UK approach which shows the UK is adopting the US legislative style. This study reviews the current corporate governance practices of the UK and US. There have been many journals, articles and reports on the American Sarbanes-Oxley Act of 2002 (Reynolds 2004). Describing how the enactment of this sweeping reform will increase investor confidence after past bankruptcies and failures in the United States. This seems to be mirrored with the recent Fraud Act 2006 and Companies Act 2006 (as amended by the October 2007 regulations).
1.2 There are still some notable differences between UK model of corporate governance and US. The most notable difference in the mode of governance is that UK uses regulatory mode of governance which requires the law to push companies in enforcing voluntary combined code and on the other hand the US has a legislative model.
Research Question
1.3 The research question which is intended to be answered by the study is “The differences between the UK and USA’s models of corporate governance”
Objectives
Objectives of this research aims at addressing the research question through exploring and dividing the study into different subtopics
• What are the differences between the UK and USA’s models of corporate governance?
• How does the EU effect UK regulation?
• What recent developments have occurred in the UK to promote corporate governance?
• Is the UK subversively adopting the US system of corporate governance more effective?
2. Framework of Study:
Background to the Study
Corporate bankruptcies and financial scandals have created a need for a mechanism or process by which companies are directed and controlled to ensure they are managed in the best interests of their actual owners, the shareholders (Laurent 2006). This mechanism or process has been labeled ‘corporate governance’ (Bingley 2003). It was virtually an unknown term until it was brought into the public eye by a number of high profile scandals, which began in the 1980’s when ‘successful’ companies started declaring bankruptcy (Vinten and Gerald 1998). Examples of high profile bankruptcies in the eighties include Polly Peck, BCCI and Robert Maxwell’s Mirror group; more recently World Com, ENRON and Anderson Consulting have filed bankruptcy in the USA (Coombes 2004). Innitailly, these companies were regarded as clean and successful and were given clean bills of health from ‘independent’ auditors (Kirkbride 2003). Many employees and members of the public invested in these household names by purchasing corporate stock. These companies however were far from being healthy and the secrets they hid ranged from inflating financial results to misappropriation (Charlesworth and Morse 1999). The UK’s accounting scandals led to the writing of the Combined Code; a set of guidelines for companies in the UK on principles and procedures for good corporate governance, the ‘comply and explain theory’, but alongside these codes legislation has been strengthened which seems to indicate subversively that the Sarbannes Oxley approach of the US is being adopted (Burr 2005).
The Sarbannes Oxley approach is the result after a number of recent accounting scandals in the US, investor confidence was once again shattered. This led to the enactment of the Sarbanes-Oxley Act of 2002. The aim of the Act is to bring back investor confidence and increase protection (Jones & Sufrin 2004). The Act requires more financial information disclosures and tightened financial reporting; the new legislation holds corporate directors and officers personally accountable for the accuracy of financial disclosures and reduces financial crime, fraud and recklessness (Helen 1991)
Methodology
The dissertation will be carried out in the following manner. The approach that best explains the method that this paper takes is action research. In the traditional way action research has been defined as a technique to conduct research based on collaborative problem-solving relationship between researcher and the users, which aims at both solving problem and generating new knowledge (Gill and Johnson 1991). It developed largely from the work of Lewin and his associates, and involves a cyclic process of diagnosing a change situation or a problem, planning, gathering data, taking action, and then the fact finding about the results of that action in order to plan and take further action. The investigative research methods undertaken for this dissertation have been primarily based on a ‘phenomenologist’ approach (Capwell et al, 2004). The approach seeks to interpret social phenomena in terms of the relationship between actor and act. This is unlike a ‘positivist’ approach where only directly observable phenomena are important and intangible or subjective phenomena are disregarded as non-important. This is why a ‘phenomenologist’ approach is sometimes described as an ‘interpretative’ approach; there is no attempt to separate the effect that the human actor has upon observable actions. The Key idea is that action research uses a scientific approach to study the resolution of important social or organisational issues together with those who experience these issues directly. Gummeson (?) believes that action research is the most demanding and far-reaching method of doing case study research. He integrates the characteristics of action research from several studies and focuses it with management perspective. Keeping in view the different viewpoint of researchers, the action research cycle was introduced. This cycle comprises a pre step context/purpose and four basic steps, diagnosing, planning action, taking action and evaluating action (Parker 2005. Therefore necessary literature about the dissertation will be collected from various books, journals, and articles. The literature will give the conceptual background and theory about the research. In conducting this study, various sources of research were used ranging from academic journals, financial books, company reports, newspaper articles, online papers, financial magazines, surveys and questionnaires. In addition, to accomplish the objective of this study, the codes of governance produced in the UK and EU as well as the US legislation, the Sarbanes-Oxley Act of 2002, were researched (Conyon et al,1997).
Structure of the Study
In this study the history of corporate governance regulatory codes and the procedure of governance adopted by the UK, the EU and USA will be explained in Chapter 2, 3 and 4. The Chapters will present the evolution of the two corporate governance models; the clarification of the past codes and present, will allow us to determine which corporate governance areas have already been researched, and will introduce the foundations for the literature review in Chapter 1. The literature review will begin with the theoretical framework of the study explaining the Anglo-Saxon economic model and the issues of the agency problem with the need to develop a solution to the agency problem; good corporate governance. The theoretical framework will set the basis for why corporate governance is needed. The literature review discusses, compares and contrasts various academic literature based upon the particular corporate governance procedures practiced in the UK, the EU and USA. As it will be revealed in Chapter 4 and 5 the argument will illustrate how the UK is subversively following the Sarbannes Oxley Approach. However this will lead to the discovery of the differences in compliance requirements between the two models.
2.2 Academic & Legal Resources
-Academic Electronic Databases
-Online Journals
- Text Books
- Electronic Books
- Official Documents
- Working Papers
- Statutes
- Case Law
The resources outlined above are essential for researching this paper and the producing this study in practice with a view to recognizing how the law in relation to the regulation of public companies has developed over time in the UK.

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